The repeal of Glass-Steagall essentially created "too big to fail" banks, and that was a big part of the financial crisis. Without "too big to fail" (and the big banks knew they couldn't be allowed to fail), there wouldn't have been much of a crisis. Some investment banks would have failed and some rich people would have become poor, but the systemic risk wouldn't have been there because commercial banks would not have been participating in the derivatives casino. There likely wouldn't have been as much pressure on mortgage companies to make bad loans and bundle either (though I suspect it would have happened anyway, just not as much of it).

(IN REPLY TO MAIN COMMENT BY “Dialectic 18” 7/29/13 @ 18:36 GMT)
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I also post my “Reply” here so it is not lost in the thread:

I agree. Glass-Steagall (GS) should not have been repealed.

With GS, the Big Derivative Casino would not have become nearly so big.

Look at the Ratio of Global Derivatives Outstanding (GDO) to Global GDP (GGDP):

In 1996, it was $40 Trillion to $33 Trillion or 1.2 to 1.

Glass-Steagall was then repealed in 1999.

By June 2008, the GDO to GGDP Ratio had ballooned to $680 Trillion to $54 Trillion or 12.5 to 1. The numbers are burned into my memory.

Derivatives were increasing at a much, much faster rate than was Global GDP, which was not good. The GDO/GGDP Ratio increased by a factor of 10 in 12 years. Derivatives were supposed to hedge against risk, but did risk increase by a factor of 10 in only 12 years? I don’t think so.

Of course, I do not have Derivative numbers for the U.S. alone. But it would be safe to bet that America’s “GDO to GDP” Ratio in 2008 was higher than the Global average of 12.5 to 1, since America would tend to have more derivatives than, say, Bangladesh. (With all due respect to Bangladesh.)

We can blame both Democrats (Clinton) and Republicans for repealing Glass-Steagall (GS). But in 2012-2013, most Republicans do not want to reinstate GS, while the Dems want to.

On July 25, 2012, former Citigroup Chairman & CEO Sandy Weill told CNBC that we should reinstate Glass-Seagall and have banks do something “that is not going to risk the taxpayer dollars”. Weill said that even though he was in favor of repealing GS in 1999. As for why he changed, he said “the world changes”.

But also in July 2012, Congressman Eric Cantor (REP-VA) introduced legislation that “would put a moratorium on regulation until the economy bounces back and UNemployment goes below 6%”. So we cannot reinstate GS until the economy improves? So the thing that caused the Derivative Bubble and the economy to crash cannot be fixed until the economy improves? I fail to see the logic in that.

As Jon Stewart pointed out on the Daily Show, due to a typographical error, the above legislation actually read: “until EMPLOYMENT goes below 6%”. So we would have to have 94% UNemployment before we could have regulation again!

I would like to add to my original reply: Should the “Too Big To Fail Banks” need another $700 Billion bailout, might I suggest they use some of the over $2 Trillion (with a “T”) in Excess Reserves that they now have on deposit at the Fed? Just asking.

I'm post-racial and so is the large department in which I work, have been for years. I'm working on being post-sexual orientation, but keep getting dragged backward into contrived racial tensions and biases. The President's divisive economics and social policy deny gains and impede improvement.

I rather suspect Mr Murdoch's idea of a good policy is to cut taxes, spending, expand the military, and cut SS but only for people under 55.
And lest I forget, especially expand the survellence state because then that nasty business in the UK wouldn't be a problem as he could buy the info from Google or a phone carrier.
Never mind that growth and advancement of a more balance share of return for one's work are not mutually exclusive. In fact, they might feed each other.

Obama had the federal government carry out the Bush policies to save the rich from the economy they had created. But when he wanted to do anything for anyone else, the Republicans objected.

Not that having the government do something for anyone else would have worked. It may be that the only way to save the middle class was to have allowed "the market" to work with no government help, and allow The Great Depression II.

After the value of paper assets was wiped out and everyone and everything was bankrupt, the federal government could have put in palliatives to prevent deprivation and reflated the economy on a more equal basis (ie. Social Security owns all the stock in the reorganized companies, at least at first).

It is expensive to die theses days honest. Funeral homes have long been accused of taking advantage of their customers, who are forced to make a series of expensive decisions in the immediate aftermath of a loved one’s death, when they’re extraordinarily vulnerable. And a recent investigation by the Federal Trade Commission finds that — despite frequent crackdowns — deceptive and manipulative practices continue at a strikingly high percentage of funeral homes: About one in five, in fact. In 2012, 23 of the 127 funeral homes, or about 18%, that the FTC visited undercover “significantly violated” the federal agency’s Funeral Rule, a 1984 law that requires funeral homes to give consumers itemized price lists, prohibits them from requiring the purchase of certain items like caskets as a condition to get other products and services, and bars aggressive selling of services not required by law, like embalming. The highest occurrence of violations among the areas checked this year were found in the Brownsville/Harlingen area of Texas, where 8 of the 21 facilities visited broke the rules; Everett, Wash., where four of the 11 funeral homes were cited; and McAllen, Texas, where four of 18 were in violation. In addition to the 23 where “significant” violations occurred, the federal agency says another 43 additional funeral homes were in violation of more minor compliance issues — meaning that more than half the funeral homes visited were violating the law in some way. While the FTC doesn’t release the names of the violators, it does attempt to get funeral home operators to comply with the rule by either enrolling them in a three-year program called the Funeral Rule Offenders Program, which serves as an alternative to a possible FTC lawsuit and fines of up to $16,000. So far only one funeral home in violation had not signed up, and it remains under investigation, according to the FTC.The FTC found more violations in 2012 than the year before, when it discovered that 16 of 102 funeral homes investigated had significantly violated federal law. But last year’s number was far lower than in 2009, when the FTC found 49 “significant” violations in 175 homes, or about 30% of those visited. I thank you Firozali A.Mulla DBA

Much of the health care industry has just taken over th job of a funeral home.

"I felt a little ill and called Dr. Symmachus.
Well, you came, Symmachus, but you brought 100 medical students with you.
One hundred ice-cold hands poked and jabbed me.
I didn't have a fever, Symmachus, when I called you –but now I do.
Book V, No. 9

I dunno, teacup775. They must be doing something right.
.The Wall Street Journal is an American English-language international daily newspaper with a special emphasis on business and economic news. It is published six days a week in New York City by Dow Jones & Company, a division of News Corporation, along with the Asian and European editions of the Journal.
.The Journal is the largest newspaper in the United States, by circulation. According to the Alliance for Audited Media, it has a circulation of about 2.4 million copies (including nearly 900,000 digital subscriptions), as of March 2013,[2] compared with USA Today's 1.7 million. Its main rival in the business newspaper sector is the London-based Financial Times, which also publishes several international editions.http://en.wikipedia.org/wiki/The_Wall_Street_Journal

If Free Exchange says "the the real authority over the demand side of the macroeconomy rests with the Federal Reserve," and Barack Obama appoints the people who run the Federal Reserve, does not that make him culpable for the apparent failure of the Federal Reserve to restore demand? He had appointed most of the members of the FOMC, after all.

Has anyone ever had a long argument with one's boyfriend/girlfriend where there are perhaps 10 issues talked about but the other party chooses to focus on not any of those issues but rather something you said in passing?

The WSJ article focuses on median household incomes falling from ~$56k to ~$51k now. This took three long paragraphs and a chart. It also mentions as an aside Obamacare, taxes, food stamps and Fed QE (all in two paragraphs).

In contrast, this blog dismisses falling household incomes in one sentence (not even a paragraph), and talks about the asides in seven paragraphs and five quotes.

I'm on a tangent but I do not think it is a stupid idea for the House to strip SNAP out of the Farm Bill. As it stands in the Senate, it accounts for 80% ($768 billion over 10 years) according to CBO. SNAP is nutritional program and should be funded through HHS. It should not be that difficult to move some money around, consolidate departments and make SNAP part of Obamacare.

The only purpose of sticking it in the farm bill was to get farm state Republicans on board. Sadly, farm subsidies are much more popular in Congress than SNAP. Now, I wouldn't have a problem with separating them if it means killing farm subsidies and keeping SNAP funding, if not the exact program itself. But it turns out the House is trying to do the exact opposite.

"This is egregious whatever you think of the food stamp program, and it’s indicative of why the endless, often-esoteric debates about the Republican future actually matter to our politics. Practically any conception of the common good, libertarian or communitarian or anywhere in between, would produce better policy than a factionally-driven approach of further subsidizing the rich while cutting programs for the poor. The compassionate-conservative G.O.P. of George W. Bush combined various forms of corporate welfare with expanded spending on social programs, which was obviously deeply problematic in various ways … but not as absurd and self-dealing as only doing welfare for the rich."

I agree with this passage from The Foundry's "bloated, awful big government program" link"

Supporters of this farm-only farm bill wasted the golden opportunity that separation could have provided: the ability to promote policies that benefit taxpayers, farmers, and consumers in a fiscally responsible way. With the passage of this bill, the House has gone even further to the left than the Senate bill. It would spend more money than Obama on the largest farm program, crop insurance.

With separation, real reform to rein in market-distorting programs and special interest handouts could finally happen. But now that separation has occurred, they’ve forgotten the very reason why separation was needed in the first place.

The Wall Street journal isn't a credible editorial source anymore. When members of their editorial board call a bike sharing scheme funded by ads communism and talk of a fascist bike lobby you know it has lost its way.

Technically, the Journal itself never said that. However, their editor Dorothy Robinowitz described the "bike lobby" as being "dreadful," "totalitarian," and "all-powerful." We all remember the famous quote about fascism in Germany,

"First they came for the motorcycles,
and I didn't speak out because I didn't ride a chopper.

Then they came for the trucks, and I didn't speak out because I wasn't a trucker.

Then they came for the taxis, and I didn't speak out because I don't ride taxis.

Then they came for my car, and there was no one left to speak for me."

It's not obvious that either reducing inequality (per se) or cutting the deficit (especially by increasing revenue) should be a goal of US economic policy at the moment.

To the extent that inequality represents differences in individuals' value marginal product, it should be embraced by policymakers. To the extent that inequality is driven by disparate bargaining power or rent-seeking behavior, it certainly is inefficient. But the goal of policy should be to treat the root cause of the problem, and not to throw a Band-Aid on the symptom.

The deficit isn't a problem, either. It's not something that the US should establish as the new normal going forward, but deficit spending is also an entirely sensible response to a fragile economy. Moreover, The Economist itself has argued (correctly) that when the time comes for fiscal contraction, the bulk of the adjustments should be on the spending side, and not the revenue side.

But to those people, the root cause is the lack of bandages. They believe the natural state is to be bandaged all over and that the game is rigged when a bandage is removed. In the beginning there was socialism and there was no death or suffering. Then the elephant tempted humanity to eat from the tree of Norquist.

I completely agree, but if you are going to take something as given, the prudent course is not to use that data conditionally. I mean, if you say if x, then y and x is assumed, you're just saying y, right?

e.g., I just think congress shouldn't worry about anything more complicated than the budget they already aren't up to, including inequality. If I were a fire chief and one of my fireman could barely hold the hose, I sure wouldn't ask him to sing. The current congress can barely hold its hose.

I never claimed that you did. But you believe deregulation rigs the system in favor of the privileged. Others like myself believe that more often than not it was regulation that rigged the system in favor of incumbents and that deregulation fixes that.

"The core problem has been Mr. Obama's focus on spreading the wealth rather than creating it. ObamaCare will soon hook more Americans on government subsidies, but its mandates and taxes have hurt job creation, especially at small businesses. Mr. Obama's record tax increases have grabbed a bigger chunk of affluent incomes, but they created uncertainty for business throughout 2012 and have dampened growth so far this year."

The Economist's response completely leaves out Obamacare and just talks about marginal tax rates which aren't mentioned by the WSJ.

That quote is, frankly, sillier than what SM rebutted. ObamaCare is only a subsidy for taxpayers insofar as it gives money to people who were *already* buying health insurance. For everyone else, it is compulsory consumerism. For those of us who don't want to purchase private health insurance, for whatever reason or reasons (my objections are that it is economically unaffordable, ethically abominable and practically useless), it amounts to kicking in pay part of a bill that we don't wish to pay at all.

Yeah right, which is why the insurers helped pushed it through with their own money and publicity.

Watch the Frontline episode 'Obama's Deal'. They only get screwed for denying pre-existing conditions if the pool of the insured is only sick people. If everybody (ie, the healthy) is forced to do it, they make out like bandits.

The short answer is that the GOP's insistence that markets and market players optimally self-adjust, and that markets are efficient, led to under-oversight by US agencies, and a lot of bad decisions made by the financial industry, ultimately tanking the US and world economy.
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The GOP then obstructed any effort to improve the economy and oversight, not willing to give Obama a political victory, and continue to blame Obama for the slow recovery.
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Ultimately, the GOP is responsible for both the tanked economy and the slow recovery, and their low approval rating shows it.
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In short, regarding economic policy the GOP has been a disaster, and has no credibility.

Left, right, center, Democrat, Republican, independent, I think we can all agree that you're being partisan and lack credibility.
."The Gramm-Leach-Bliley Act makes the most important legislative changes to the structure of the U.S. financial system since the 1930s. Financial services firms will be authorized to conduct a wide range of financial activities, allowing them freedom to innovate in the new economy. The Act repeals provisions of the Glass-Steagall Act that, since the Great Depression, have restricted affiliations between banks and securities firms. It also amends the Bank Holding Company Act to remove restrictions on affiliations between banks and insurance companies. It grants banks significant new authority to conduct most newly authorized activities through financial subsidiaries. Removal of barriers to competition will enhance the stability of our financial services system. Financial services firms will be able to diversify their product offerings and thus their sources of revenue. They will also be better equipped to compete in global financial markets."
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- Bill Clinton
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I await your ad hominem response.

According to one of my econ professors, during the time when Glass-Steagall was in effect and its repeal was under development but not obviously going to happen, none of the 10 largest financial firms in the world were American. It isn't immediately falsifiable that this was a bad thing so I agree with you.

But I also agree with D18 in this way- having regulations you don't enforce is probably worse than either over-regulation or under-regulation and that was the Bush administration's approach. Talk about uncertainty.

I agree with Clinton that the repeal of Glass-Steagall did not cause the financial crisis. Nobody I have ever talked to has been able to explain how Glass-Steagall would've prevented the financial crisis. It's as if someone said it once and it just got repeated.

Non-regulation can be a problem if it opens the door to corruption but otherwise, if something shouldn't be regulated, non-regulation is preferable. I have a different view of the Bush approach. Remember he wanted to appoint Harriet Miers to the Supreme Court and presumably that wasn't to weaken the Supreme Court. I think Bush valued loyalty more than competence.

I agree about Glass-Steagall and Harriet Miers and Bush. But I think it was or was nearly policy that you appointed people to regulatory bodies who didn't believe in the mission. To me that is a different and worse alternative to either deregulation or to appointing people who believe as you do, that the mission is important but that importance demands a light touch. I don't think Bush' SEC appointments were incompetent, I think they thought they were there to gum up the works. It was part of a theme with John Bolton at the UN, for example.

I'm all in favor of people with pro-business theories regulating business. I'm in favor of people who want a level-playing field enforcing civil rights. But I think constructive engagement is better than passive resistance for people with government jobs. I'd rather see people fail at dismantling than succeed at sabotage.

I'd rather see people fail at dismantling than succeed at sabotage.
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Pity so much of the House disagrees with you on that. They are, as far as I can tell, purely delighted to engage in sabotage anywhere and everywhere. Which is why I will be totally unsurprised if they end up shutting down the government before the year is out. It's not just that they dislike some (lots of) Federal programs. It's that they dislike the entire Federal government (DoD excepted), and would see no downside to having it shut down. Until, I suppose, their constituents (meaning, as they seem to, only those both in their districts and voting for them, not everyone in their district) discover that they are among those hurt by it.

The repeal of Glass-Steagall essentially created "too big to fail" banks, and that was a big part of the financial crisis. Without "too big to fail" (and the big banks knew they couldn't be allowed to fail), there wouldn't have been much of a crisis. Some investment banks would have failed and some rich people would have become poor, but the systemic risk wouldn't have been there because commercial banks would not have been participating in the derivitives casino. There likely wouldn't have been as much pressure on mortgage companies to make bad loans and bundle either (though I suspect it would have happened anyway, just not as much of it).

Uh, the repeal we're talking about happened in the 1990's.... and I don't think Glass-Stegall could have been repealed in response to the most recent crisis without time travel.... are you saying we have time travelling legislators?

And, because they were simply investment banks they were allowed to fail. Without gov't intervention, BofA and Citi certainly would have failed too (both horribly run institutions) due to their bad bets.

The repeal of Glass-Steagall mitigated the damages of the financial crisis.

List of companies that would have been subject to Glass-Steagall: Citi, JPMorgan

List of companies that would not have been subject to Glass-Steagall: Lehman, Bear Stearns, Merrill Lynch, AIG

If you knew nothing else about Glass-Steagall, you might guess that Glass-Steagall helps banks weather financial crisis. And you'd be right. Bill Clinton was right. Repealing GS, allowed Citi and JPMorgan to build cushions to soften the blow of the financial crisis. No such luck for pure investment banks.

Once we were knee-deep in the crisis, the repeal of GS helped again. It allowed JPMorgan to merge with Bear and BoA with Merrill, something that would not have been possible under GS. In addition, the remaining investment banks were turned into hybrids so they could access the Fed's discount window. That would not have been possible under GS. So basically, if GS was still around in 2007, it would have been repealed or every investment bank would have been liquidated.

No, but the existence of Glass-Steagall created too-small-to-compete banks. Which meant that instead of Citi, Washington Mutual and B of A being chock full of toxic assets, the same problem assets might otherwise have been in UBS, Banco Santander, and/or First Universal Bank of The Unification Church. However bad this all was, we can probably be grateful that Ben Bernanke and Tim Geithner were in charge of fixing the problem.

So those investment banks, fail... so what? They don't hold deposits, they don't lend money, all they do is bet on the stock market - they don't add much of anything of value to the economy. They just make rich guys more rich (too often at the expense of the rest of us). That isn't valuable. They don't make things, they don't sell things, they don't employ many people, they don't lend money to businesses to grow or people to buy homes or start businesses. In short, if they fail, so what. Once they were linked to commercial banks (which do all those things I listed) their betting became a serious issue when they lost.

So, no, the Glass-Steagall repeal didn't make anything better. If a bunch of rich people lost their shirts, it doesn't really matter. But because those investment banks were tied to commercial banks which really do perform valuable services to the economy, their failures nearly brought down the entire economy.

Or, those banks don't make stupid loans to people who obviously couldn't pay them back and we don't have this problem. I saw this crap coming in 2004, and was surprised it took as long as it did to crash. When you see continuous adverts for "no down, interest only, everyone qualifies" home mortgages, you know crap's gonna go bad.

Merging commercial/investment banks just created huge incentives to risky investing/betting. Banks competed just fine before the repeal, they just didn't get to become dangerous behemouths but they were still profitable.

The repeal happened in the 1990's, but it didn't result in a mad rush to form universal banks. Morgan Stanley, Goldman Sachs, Merrill Lynch, Bear Stearns, and Lehman Bros all remained investment banks until 2008. It was in response to the crisis that Morgan Stanley and Goldman switched to become universal banks, Lehman collapsed, and Merrill Lynch and Bear Stearns sold off.

On the other side, neither Bank of America nor Wells Fargo had significant investment banking arms before 2007. Their purchases of distressed investment banks was, again, mediated by the Federal government as a part of the response to the financial crisis.

Moreover, your rather simplistic analysis overlooks a number of glaring inconsistencies. If universal banks were so unstable, why did JP Morgan Chase make it through the crisis relatively unscathed? If the failure of an investment bank doesn't cause systemic risk, then why was it the collapse of Lehman that precipitated the worst of the crisis?

And, finally, there are a couple of things on which you're just flat wrong. First, Bear Stearns was not allowed to fail. Instead, the Federal government facilitated its sale to JP Morgan Chase in order to prevent its bankruptcy. Second, BoA's need of rescue was the result of its purchases of Countrywide Financial and Merrill Lynch. Those mergers were similarly facilitated by the Federal government as part of its response to the crisis.

I don't see the merger as creating those incentives. I think banking creates incentives for risky investing and betting and SLMA/FDMC created incentives for risky mortgage lending in particular. The point is that all Glass-Steagall removed was a special condition for American banks.

I think the closest you can get to making this connection is that the merger of consumer banks and investment houses brought risk in one sector to all sectors. As Ah Beng noted, what is a little intriguing in the history the crisis is that mortgage loans seem to have been the origin of the problem (or high gas prices which caused the mortgage market to melt down,) which is a consumer banking issue, but it was two pure investment houses that collapsed first.

You can also build a case that it was the presence of investment and consumer banking under the same huge roofs that made it possible to get things rolling again.

Honestly, had Glass-Steagall been in effect, those investment banks would all have been allowed to fail and the economy would have been okay. As I stated in a prior post, they don't fill any neccessary function.

BofA is horribly run, as is Citi. Wells had a ton of housing derivative exposure (as did BofA and Citi). JPMorgan thought up the derivitives, and went about it much more intelligently than the other banks (they paid a lot more attention to what they were investing in).

Bear Stearns failed, but were then bought - there's a difference. BofA had a lot of housing exposure before their purchases (if they hadn't needed help, they could have said "no" to those purchases).

You also miss the basic thesis - repealing Glass-Steagall created too big to fail, the guys running these big banks knew they became too big to fail and bet accordingly. Tying executive compensation to stock performance (instead of business performance) is also a big piece, and stupid.

Your claim that investment banks would have been allowed to fail is debunked by that fact that the Federal government intervened when the very first investment bank was about to fail. Furthermore, the banks threatened when Lehman collapsed were other investment banks, not the few big universal banks.

Without investment banks, there'd be no one to underwrite corporate bond issuance, IPO's, or M&A's. All of which are very necessary functions, and why the government rightly stepped in when they were on the brink of collapse.

I understand your basic thesis. It's just wrong. BoA became "too-big-to-fail" by merging with Fleet, not by expanding into investment banking. Merrill Lynch and Morgan Stanley were similarly "too-big-to-fail" while remaining purely investment banks.

You mean they don't actually invest? Really? because that's kinda all they do, invest. You know what investing is? Legal gambling.

You want capital to start a business? Not an IPO, but to start up? You go to a commercial bank, or a venture capitalist (which isn't an investment bank) or kickstarter. You want to buy a house? Commercial bank. Expand your business? Commerical. these are the necessary things banks do. Underwrite a merger/aquisition? not important; if you ain't got the capital, maybe you should not be doing the merger/aquisition. IPO's? ripoff, investment banks aren't needed (they're actually why you never buy into an IPO) just investors. corp. bond insurance? not strictly necessary (buyer beware and all that).

investment banks are only necessary because they've convinced wall street types they're necessary... but they're not. if they all went away tomorrow due to some magical law that outlawed them other entities would fill any necessary niches in the economy.

AIG, Fannie Mae, Freddie Mac, Goldman Sachs, Merrill Lynch, GM... they were too big to fail and none of them would have been subject to Glass-Steagall.

There's no better case for Burkean conservatism than the rise of the stock option. It was universally accepted as a good idea in the 90's. IRS 162(m) which gives stock options preferential tax treatment was Bill Clinton's idea.

I'd suggest that it goes farther and wider than that suggested thus far.
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For example, the biggest lynch pin in the deal may have been AIG, which ended up receiving $185 billion from TARP to recapitalize, and all because it sold SWAPS (essentially CDO insurance) to anyone and everyone with no understanding of their risk.
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Second, the banks were under-capitalized at 30:1 loan to assets, e.a., had borrowed $1 for every $0.03 in assets.
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Third, CDOs, virtual CDOs, SWAPs and SWAPs on the virtual CDOs were all done without a central point-of-trade, so nobody knew who owned what, and who owed what to whom, should the market tank and SWAPS need to be paid on.
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Fourth, rating agencies like Moody's ranked the risk of CDOs using a model that housing prices would never fall; and assumed that mortgage defaults would never occur across the country simultaneously, therefore providing AAA ratings to portfolios full of high-at-risk borrowers only because they lived in different parts of the country.
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Fifth, what precipitated the fall was when the Fed raised interest rates to 6% (as I recall) in I believe June, 2006. Those homeowners with interest rate ARMS and similar mortgages couldn't pay the higher rate and began to default.
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My recollection is that the benchmark for the CDO SWAPS was 6% default, so once the defaults began, those who had provided SWAPS were under tremendous capital pressure once the pay-outs began, the whole thing fell apart like a house of cards, and nobody knew who owed who, how much was owed, and what any individual bank had in available capital.
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Basically, except for Wells Fargo and JP Morgan, the ten largest US banks - and AIG - were all insolvent.

I would not go so far as to say investing is legal gambling. I would call it informed risk-taking. Though the line is not that clear. But I think what sets them apart is an investor is in control of what he/she doing. A gambler is not. A gambler keeps chasing. He/she cannot stop.

In other words, I believe the problems went beyond the repeal of Glass-Steagall, and regulators who wouldn't regulate.
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But rather, a conscience decision by government was made not to get involved in markets, and to allow a crazy quilt Rube Goldberg of a system to develop where trillions of dollars were being bet, and bets were piled on bets, and bets were made against other bets which were leveraged by even more bets.
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That is, IMHO the problem was systemic, and was allowed to be created via a mindset that markets are always efficient, and markets are always right.

You realize that an IPO takes place very typically for a venture capitalist to realize a profit on their investment, right? That they use an underwriter such as a massive investment bank so they can sell the shares to their customers ahead of time to try to guarantee a proper return?

And buying a house (individual) cannot be compared to the functions of a business expanding or needing credit, which a commercial bank can provide, but it's just as plausible that a VC or IPO can provide the same influx of cash.

"if you ain't got the capital, maybe you should not be doing the merger/aquisition"

Perhaps that should apply to individuals buying a car or a house too? Yeah, let's just lock up the entire world of finance, modern economics, and all the benefits it brings to literally billions of people because you think it's "gambling".

And c'mon man, kickstarter is not an alternative to the current status quo. It's a side joke that barely registers compared to the vast majority of global capital movements.

Well, Fannie and Freddie are gov't enterprises and therefore a special case (and I believe the mgmt in charge before the crisis is gone). AIG is essentially gone, Merrill Lynch is gone, GM does a lot more than financing, and Goldman should have been left to die (that company, specifically, is a bad actor).

Not familiar enough with Edmund Burke to comment on the last paragraph. I will say Clinton had a lot of stupid ideas, I suspect because he was always schmoozing with the business class and was easily convinced by his desire for lotsa money. He was also good at goin' along to get along.

IPO only needs lawyers, not investment banks. Investment banks get in on it to get some free money. If they don't think the shares will sell for enough, then don't do the IPO - they're obviously not ready yet.

Sorry, but business mergers/aquisitions ain't the same thing as a person buying a house. Not even close to being comparable. M/A's are often done to sell the company off piecemeal ala the movie Wallstreet. They're also a risky gamble - look at Time Warner's fail-quisition of AOL, HP with Compaq, and many many others. If people would do their homework instead of listening to some guy at an investment bank (who wins regardless) promising them easy money, maybe there be far fewer failures in the M/A game. So, yeah, most mergers/aquisitions are bad for the companies, and about 99% of the time bad for workers at one or both companies.

I also bookmarked DP. He is one of the few commenters I read at TE any more. And so discovered you mentioned Ash in this thread.

Since you did, you need to know it straight from the source - it would not be inconsistent with Ash's impression of a fox's above average mental acuity that it gets the job done without the need of leonine brute-force. If what Ash said in the past indicated the contrary, it was totally in context. And correctly so, based on evidence. Remember - your word: "Evidence"?

You are the one who denied you have a good mind, despite my repeated mention. I assess cognitive functioning, among other things, for a living. What I noted negative was a fox turned into a porcupine whenever a blind spot took over, as if the fox were cursed by Tourette. Porcupines don't get jobs done except the job of being a porcupine.

In as much as Clinton invented triangulation, it's hard for me to believe that but for Newt and the GOP of the era, that kind of rule might not have seen the light of day.

It doesn't matter which 'party' thought of it.

Investment banks were making a mint off of derivatives, an instrument mostly abused after its invention. The derivatives required toxic waste (subprime loans) as raw material and so the invesment ends happily made commercial ends generate the stuff. AIG and the banks all fed off the 'rating' agencies who happily took valuations at face value. The rating agencies themselves knew they were producing crap. Apparently there is a rather giant email trail of individuals saying as much.

A major issue is that all forms of financial institutions were buying into the derivative markets, which relied on the ratings agencies' favorable review, and they took at face value the risk assessments for the derviatives. Rinse, repeat.

In large part banks don't hold onto the loans they issue, they sell them off, with no skin in the game and with profits before them, they had no real reason to care about the quality of the loan anymore. The business necessity of due dilligence went out the door.

With Glass-Steagall, the Big Derivative Casino would not have become nearly so big.

Look at the Ratio of Global Derivatives Outstanding (GDO) to Global GDP (GGDP):

In 1996, it was $40 Trillion to $33 Trillion or 1.2 to 1.

Glass-Steagall was then repealed in 1999.

By June 2008, the GDO to GGDP Ratio had ballooned to $680 Trillion to $54 Trillion or 12.5 to 1. The numbers are burned into my memory.

Derivatives were increasing at a much, much faster rate than was Global GDP, which was not good. The GDO/GGDP Ratio increased by a factor of 10 in 12 years. Derivatives were supposed to hedge against risk, but did risk increase by a factor of 10 in only 12 years? I don’t think so.

Of course, I do not have Derivative numbers for the U.S. alone. But it would be safe to bet that America’s “GDO to GDP” Ratio in 2008 was higher than the Global average of 12.5 to 1, since America would tend to have more derivatives than, say, Bangladesh. (With all due respect to Bangladesh.)

We can blame both Democrats (Clinton) and Republicans for repealing Glass-Steagall (GS). But in 2012-2013, most Republicans do not want to reinstate GS, while the Dems want to.

On July 25, 2012, former Citigroup Chairman & CEO Sandy Weill told CNBC that we should reinstate Glass-Seagall and have banks do something “that is not going to risk the taxpayer dollars”. Weill said that even though he was in favor of repealing GS in 1999. As for why he changed, he said “the world changes”.

But also in July 2012, Congressman Eric Cantor (REP-VA) introduced legislation that “would put a moratorium on regulation until the economy bounces back and UNemployment goes below 6%”. So we cannot reinstate GS until the economy improves? So the thing that caused the Derivative Bubble and the economy to crash cannot be fixed until the economy improves? I fail to see the logic in that.

As Jon Stewart pointed out on the Daily Show, due to a typographical error, the above legislation actually read: “until EMPLOYMENT goes below 6%”. So we would have 94% Unemployment.

Unfortunately certain institutional investors intentionally misinformed themselves. Nobody understood the instruments they were dealing with. The lure of insane profit and the feeding frenzy in the market fed into the herd nature of finance and business.

In short most fit the definition of gambler or mob and not of investor.

The idea of upward mobility in America is a powerful and deeply engrained part of the American Dream. Never was that idea more potent
or more seductive than in mid-century America, when the real Mad men of Madison Ave. cleverly created ad campaigns calculated to sell the American dream to the world and to ourselves. For a look at one such ad campaign that both reinforced and reflected the fairy tale suburban life offering a template to the newly minted middle class please visit " A Blueprint for the Middle Class.http://envisioningtheamericandream.com/2012/09/24/a-blueprint-for-the-mi...

Everyone blames the sitting or previous president of the opposite party for economic woos and credits the sitting or previous president of the same party for good economic news. Both Obama's speech and op-eds about his speech should be of little interest to anyone.

I think it needs to be emphasized over and over again that growing income inequality is a pre-tax phenomena. It should also be noted that the US has the most progressive tax in the OECD and does a lot of redistribution with the revenue. The difference with Europe is that Europe has higher taxes and spending, not more progressive taxes and spending. Top marginal middle class tax rates in Europe can easily exceed 40%. This is not an argument against higher taxes but if you want the US to be more like Europe, the biggest change is higher taxes on the middle class.

"Among SNAP households with at least one working-age, non-disabled adult....

Everyone should've stopped reading right there and recognized the folly of the statistic to follow. From 2008 to 2010, disability claims rose over 25%. Was there a sudden surge in falling trees? Obviously, more work-able people are claiming disability in the Obama economy. This isn't Obama's fault and maybe there isn't even anything we can do about it but it is undeniably happening.

On taxes, any one small change in taxes will be found to have ambiguous impact. Transferring $60 billion from private hands to the Treasury in a $16 trillion economy can get lost in the noise. But you can justify a 1-point increase until you end up with a 100% tax and 100% unemployment and still show that each increase had negligible impact. That taxes reduce the size of the workforce and slow economic growth is objectively more certain than climate change models. To point to some empirical study of a fast food restaurant is like pointing to a snowy day to attempt to refute climate change.

Just to quibble, the start date on your claim about disability claims seems fishy. My understanding is that this trend goes back to Clinton and includes all of Bush. It isn't under the Obama administration that disability is ridiculous, it's in America.

Another data point for my emerging belief (in part persuaded by RR comments) that we should just scrap means testing and eligibility and just let people declare for benefits if they don't want to or can't work. At least it would save taxpayers a lot of administration and legal fees.

Disability claims spike during recessions. The two biggest yearly increases were 2001 and 2009.

There's this ugly trade-off between means-testing and universal provision. Even apart from the administrative costs, means-testing raises the benefit-inclusive marginal tax rates on the poor. More income means fewer benefits. I've never bought into the "culture of dependency" argument for cutting welfare but it's hard to dispute that a 95% marginal tax rate encourages dependency.

On the other hand, universal provision is very expensive. To replace all welfare with universal subsidies would require something like an 80% across-the-board tax hike. I tend to think that's a lesser evil but not by much. Right now, I'm liking the idea of offering low-wage government make-work jobs with no eligibility requirements other than having to continuously apply to private sector jobs. Everyone works for their keep, no exceptions. Yes, make-work costs more than handouts but it may encourage enough people to find value-adding jobs that it would end up saving money.

I admit to a fondness for the concept of "make-work government jobs" as a condition for welfare. The challenge is to come up with jobs which are, if not actively useful, at least not harmful. I have my doubts about what we are likely to come up with -- while admitting that the CCC during the Great Depression managed to do a fair amount of good for our infrastructure, so perhaps we could pull it off again.

Right. RR will eat his words when we start putting everyone to work as regulators.
The only problem I see with the make-work solution and the mandatory job applications is that the elegant solution in my mind (and totally meritless empirically) is that there are a minority of people who just plain old don't want any responsibility, that they are a small minority and that most of us would work and try to get richer even if we didn't need to.
If that is true then all the mandatory whatevers are just creating compliance costs. I figure the people who won't or can't work won't work or can't work and will find some way, as long as there is a social safety net, to use it for a hammock. Also, I have been boss or coworker to people who didn't like working. What good does it do for employers if we send lazy people into the workforce? That just creates management inefficiencies.
So, instead of having lawyers in the sole business of appealing SSDI claims or welfare claims or what have you, it might be better for taxpayers in particular and the economy in general if people who didn't want to work our couldn't just had to sign a piece of paper saying they are not working to receive basic benefits. SNAP, SSDI, Unemployment, AFDC, WIC (if you also ask if they have young children) can be one program with the only eligibility criterion being that you are not currently working.

Infrastructure would be the obvious choice, and a very good one considering the state of our insfrastructure. It would also be good to get Americans from disparate parts of the country together and maybe heal some of the civil strife we have now.

I expect that we could get more value added from high school grads building infrastructure. College grads would, I suspect, spend too much time complaining (even if perhaps not aloud) that they were being asked to do something beneath their education level. Even if their education is in something not particularly useful.
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And I like supamark's note about the need to get our infrastructure (much of which was built decades ago, brought up to day. Or at least provided some of the "deferred maintenance" that we have been skipping.

I wonder if we could spend some of the workfare money on studying what went wrong with the up-bringing of the folks who would rather do nothing than work. I mean, if you would rather just sit on the couch watching daytime television than even work on a hobby, something went wrong at an early age. After all, small children don't seem to have a problem finding an interest in working at stuff. (Not always explicible to adults stuff, but that's beside the point.) So, how did these folks lose it, and what could we do to help them not lose it?

A lot of infrastructure is a lot more technical than it once was. On the other hand, everybody under 30 is comfortable working with computers to a degree that is almost impossible for most people over 60 to imagine. So, civil engineering degree or no, they could do more of the work than you expect.
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Not the design, no. But the construction? I think so. Constructing and maintaining) subways, highways, flood control dams, etc. -- an awful lot of what gets done by people using machinery and automation is no more difficult to deal with than a lot of video games.

Ditches and holes still need to be dug, and that's not intellectually intensive work by any means...

Putting the shiftless unemployed to real work would be good for them, both physically and... morally? If nothing else, we get our infrastructure renewed for the next 30 years or so and kids discover a new reason to go to college and earn a useful degree - manual labor kinda sucks.

Seems like it might be time to go old-school, and bust out the picks and shovels. Make a reality show out of it and you'd have people lining up to participate. We did great things with infrastructure in the '30s, and I think there's a lot to be said for putting kids from different backgrounds together and making them learn to work together. Might help with our political polarization as a side benefit.

I can vouch for that sentiment, based on second hand knowledge.
I know a retired carpenter who started volunteering for Habitat for Humanity. His obvious skills made him a foreman/lead in short order.
Of college students he says they are hopeless. Kids out of the army at least pay attention and can follow orders and so are reliable. Almost all can't drive a nail or cut board to save their lives. None of this stuff is rocket science I might add.
I know a lot of people from the trades and what is obvious is that somebody, regardless of background, advances on obvious merit, give or take a few of the owner's boys and girls. Professions are much more controlled by social networks and peices of paper.

Well, I might suggest that both the prison population and those facing welfare be put into a pool picking crops or sweeping streets or being bus boys. All that dirty scut work handled by illegals, otherwise the only thing you get is a cot and a subsistence caloric diet. One won't freeze or starve to death, but not much else would happen. No tv too.

But if your goal is to provide work, doing things the old labor-intensive way is still quite possible. We don't dig holes/ditches by hand simply because it is faster and cheaper to have machines do it. Not because you can't do a perfectly good job with a bunch of guys and shovels.

When I was grwoing up, the local businesses used to sometimes hire high school kids to work for them. They all had one common criteria: given the option, they always hired farm kids in preference to kids from town. Their stated reason: "They know how to work."
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Note that it wasn't a matter of us knowing how to do the specific job. It was that farm kids had learned at home that chores had to be done, regularly and reliably, and they would buckle down and get the job done. Kids from town might well be just as reliable and hardworking, but they also very well might not -- the business owners were playing the odds.
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One of the problems that college kids have is that they simply are not accustomed, in vary many cases, to actually working. Yes, they may have worked at studying. But they also gravitated to classes that they actually had an interest in (or that didn't require much work). Having a job, which requires hard work on stuff that isn't inherently interesting is a novelty that they can have difficulty adapting to. Having to do it on a schedule, rather than having massive flexibility as to when you do things, is also a novelty.
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And finally, having to work on projects where you need to cooperate with a lot of other people is a novelty. College requires you to cater to the whims of the teachers, but rarely do you have to work together with a bunch of other students for weeks on end to get something done. It's far easier to learn to drive a nail or cut a board than it is to adapt to having to work with other people to build a house.

I would say rather that what we want to avoid is make-work which accomplishes nothing. That would be, for example, digging holes and then just filling them in again. But digging a ditch which needs to be dug, like making coffee or picking up trash, leaves you at the end with something useful accomplished. Whether it was accomplished in the most efficient possible manner is secondary.
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I will grant you, gladly, that if we can find enough work which needs to be done to keep all of the necessary hands busy, doing it efficiently is preferable. I'm doubtful that we can, at least initially, but I'm all for it if it is possible.

Two guys digging a ditch inefficiently by hand is the same as one guy digging it efficiently with a machine while the other digs a ditch then fills it back up. We want to avoid value-subtracting work. Picking up trash or making coffee may be an inefficient use of resources but at least they add some marginal value unlike unnecessarily digging ditches by hand.

If there's no value-adding work, i.e., the streets are immaculate and every government office has fresh coffee 24/7, rather than create value-subtracting work, it would be more productive to make them watch cooking shows.